Category Archives: economics

A must read article from The Wall Street Journal…

A bidding war broke out in November when a small house in San Francisco’s tightly packed Noe Valley came on the market.

Twenty-two people, including employees of Facebook, Zynga, Google and Pixar, battled for the home. The winning offer was $1.5 million—40% higher than the asking price. The house had a great view, but it was only 1,800 square feet and came with an old kitchen which, like most of the interior, was covered in 1970s plywood paneling. Seen from the curb, there’s hardly any house at all—just a one-car garage and gate leading to small front courtyard.

The inconspicuousness was part of the attraction, said Jasmin Arneja, 42, who bought the two-bedroom house with her husband Gagan, 40, a software engineer at a networking start-up. “It’s the antithesis to these outrageous bizarre Gordon Gekko-esque houses. It just incorporates so much of our values,” said Ms. Arneja, who runs a philanthropic advisory firm.

Housing prices in the San Francisco Bay area are once again soaring, thanks to an infusion of cash from the rising shares of Apple and Google and the initial public offerings by Zynga, LinkedIn, Yelp and soon Facebook, expected to be the largest in Internet history. But while a previous generation of dot-com executives opted for mansions in wealthy San Francisco neighborhoods like Pacific Heights and tony Silicon Valley suburbs like Atherton, this generation is gravitating to modest homes and condos in grittier parts of the city.

Ground zero of the current tech-fueled real-estate boom is the Mission, formerly a majority Hispanic neighborhood on the southern edge of San Francisco that’s close to the main arteries that link San Francisco to Silicon Valley. Median home prices in the Mission grew 44% in December compared with a year earlier. Adjacent Noe Valley had a rise of 31% over that same period, according to the San Francisco Association of Realtors. The average number of days homes sat on the market in both neighborhoods has almost halved over the past year.

That’s in sharp contrast to what’s happening nationally, where the housing market continues to flounder, with the Case-Shiller 20-City index down for the fourth straight month in a row. It’s even an aberration from the San Francisco area (including Oakland), which saw a 5.4% drop in home prices in December from a year earlier.

Real-estate agents say it’s a cultural shift. The new generation of Internet executives—younger than the last generation of dot-commers—eschews the trappings and responsibilities of expensive properties. They want to bicycle, walk or take public transportation. They like living near food trucks and dive bars.

“You can spend a lot of money on a great restaurant here or just $5 on a burrito,” said Christian Niles, 31, who bought a two-bedroom apartment for $585,000 in the Mission with his wife in August because he saw real estate as a good place to store the cash he’d made from selling his app called TrackerBot to Pivotal Labs last summer. He plans to never own a car.  Read more...

From New Jersey Business comes this reminder that rising rents are affected renters nationwide:

New Jersey ranks fourth in the nation for the most expensive place to rent a two-bedroom apartment, leaving nearly two-thirds of renters in the Garden State unable to afford an apartment that size, according to a study released yesterday.

The data, from the National Low Income Housing Coalition, comes as no surprise…  Read more...

From Slate.com:

New data from the Census Bureau today on housing permits (PDF) confirms that with rents high homebuilding is making a comeback—especially multi-family structures that must be intended specifically for the rental market. Overall building permits were up 34.3 percent in February 2012 from where they were in February 2011. That includes a 73.3 percent jump in the number of units authorized in structures with 2-4 units (admittedly a small part of the overall marketplace) and a 59.9 percent leap in units authorized in structures with 5 units or more.

The increase in apartment rents is the result of several economic factors made clear in this article from the Los Angeles Times:

Home prices are tumbling to fresh lows, but new data show the rental market is on an upswing, an early indicator that housing may be headed into recovery.

Rents are increasing because the foreclosure crisis has created a steady supply of renters in recent years, analysts said, and those people — with their tarnished credit records preventing them from quickly becoming homeowners again — need places to live.  Read more...

From CNBC’s Real Estate Reporter, Diana Olick, comes this analysis of the surge in rental demand:

A huge surge in rental demand and comparatively little apartment supply created a boom in multi-family construction in the last year, but with the single family housing market slowly beginning to show signs of life, the concern among banks and investors is that all that supply will hit the market just as rental demand drops off.

Based on preliminary estimates of Q4 ’11 activity, multi-family loan origination volume increased to $82 billion in 2011, up from $50 billion in 2010, according to Chandan Economics. Understandably, some lenders and investors are starting to ask questions.  Read more...

More articles are coming online describing the improving condition – and future – of the apartment market. Here, the Wall Street Journal notes a report from Property & Portfolio Research, claiming both incomes and rents are set to increase over the next five years.

These are heady days for apartment owners: Demand is growing and supply of new rentals continues to lag. But are landlords getting ahead of themselves? Will a recovery take hold that allows people to afford heftier rents?  Read more...

“Like any other kind of real estate, the apartment market is a game of numbers, and throughout 2011, the numbers have been on the side of owners, developers and investors. After a turnaround year in 2010—everyone took a licking from the Great Recession, after all—apartments were suddenly in demand in 2011 both by renters and investors, and there’s little doubt that the year will be remembered as one in which the apartment industry fully bounced back not only from the tough recession years, but also the hard times (for the industry) of the mid-2000s, when everyone who could (and many who couldn’t) bought a house.

“Powerful demographic trends, along with changing attitudes about homeownership and tighter mortgage underwriting, continue to drive a shift toward renting,” notes Mark Obrinsky, chief economist at the National Multi Housing Council (NMHC), adding that the industry has responded, after some lag because of tight credit for everyone, with an increase in development.”  Read more…  Read more...